Recoverable VAT for housing associations could deliver thousands of new homes

Comment14.05.24by Geeta nanda

Small changes matter at a time of crisis for delivery, writes Geeta Nanda

Geeta nanda

Geeta Nanda is chief executive of MTVH

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Small changes matter at a time of crisis for delivery, writes Geeta Nanda #UKhousing

It’s May 2024, and a general election is on the horizon. If there are only two inevitabilities about the forthcoming election, they are as follows: (a) both the major political parties will warn of the dire state of the public finances and the requirement for prudence in public spending; and (b) the housing crisis will still be with us come polling day with the need for a safe, secure, affordable home on the minds of millions as they head to the ballot box.

So, with the purse strings tied, the question of how to address voters’ concerns and tackle the housing crisis is likely to be a key feature as the campaign kicks into action. We have heard the case for how we can increase delivery with land value capture, grey belts, urban extensions and renewed partnerships.

Housing associations are also continuing to make the case for a long-term housing strategy and have been vocal about a review of rents and rent convergence to ensure we can keep investing in our existing homes and building new ones. With costs and investment needs increasing, the reality of the decline in new homes being built is hitting home.

It is wrong to assume that we just need to sit back and wait for the politics to play out when there are quick wins that can at least help right now. At present, alongside the cost of building safety works, housing associations are incurring VAT on these works. For MTVH alone, our irrecoverable VAT for 2022-23 was £27m with a sector VAT bill of around £1bn-£2bn for essential building safety works.

This is certainly not an inevitability. Local authorities are able to recover the VAT they pay on essential building safety works, creating an unnecessary disparity and the absurd situation whereby former council homes, now part of housing association stock, are liable for VAT when undergoing safety works despite the same residents paying the same rent living in the property.

Although this disparity may hardly scream of an election issue, when considered against the impact on development it is yet another factor that is very much at the heart of the housing crisis. At MTVH, the added cost of that £27m for 2022-23 is greater restrictions on our ability to borrow to the tune of around £360m. This is resource that, if we were able to access, could help to build around 1,500-2,500 much-needed affordable homes.

Our deepening housing crisis is continuing to blight the prospects of millions across the UK and the nation’s prosperity at large. That housing associations are treated differently to local authorities on such a crucial matter of resourcing such as VAT is not only inexplicable, it is also throwing up yet more barriers to tackling the housing crisis by draining much-needed capital from some of the most effective house builders in the country.

Across a full range of ambition and aspiration, the appalling state of the UK’s housing crisis is there for all to see. From otherwise-prosperous young people stuck renting due to a lack of affordable options, to surging rough sleeping, and the highest-ever number of children in temporary accommodation, the fact that we simply do not have enough affordable homes across all tenures cannot be stressed enough.

No matter who forms the next government, they will need house builders. Despite these difficult times for housing associations, our potential when it comes to tackling the current challenges is clear, with the sector building one in five of all new homes in the five years to 2021 despite falling grant funding.

“The fact that we simply do not have enough affordable homes across all tenures cannot be stressed enough”

Although we will always need new money, the ability to do more with existing resources will also be key to tackling the housing crisis. By treating housing associations as they do local authorities and enabling us to recover VAT on our building safety costs, the government can help to keep billions of pounds in the sector to be invested in building the homes so many across the nation need.

Recoverable VAT on building safety works for housing associations may appear a small, niche issue – far from the election clincher our political parties are seeking. Yet, it is a small change that could help make a difference to thousands of lives and demonstrate the seriousness with which the housing crisis is viewed in Westminster. It is a policy from which we can all reap the rewards.

Geeta Nanda, chief executive, Metropolitan Thames Valley Housing